Climbing Out of the Bucket

Aug. 31, 2022

If you put a bunch of crabs in a bucket, something amazing happens.

Even though any individual crab would be able to escape, the group will work to pull that would-be-successful crab back down.

The group would rather share total failure than let one crab achieve success.

If you put a bunch of investors on YouTube or in famous blogs, something amazing happens.

Even though any individual trader would be able to beat the market, the financial advice industrial complex will haze that trader into compliance.

The group would rather share 50% drawdowns and decades of zero returns rather than let one person make life-changing money.

Apparently.

It’s one thing to say, “Listen, I haven’t done much research and I don’t have much time. I know I could do much better but the easier, less profitable solution is all I can manage right now.”

Nothing wrong with that. (For a few more paragraphs.)

But it’s another thing entirely to say, “Academic research shows that it’s impossible to make more than the market. Therefore, THE ONLY WAY TO TRADE IS THROUGH INDEX FUNDS.”

Everything is wrong with that. That academic research is meretricious and, more importantly, stop trying to convince innocent people they can’t do better.

But Forex robots are scary and weird and don’t have famous people writing blogs with millions of visitors.

I get it.

This week, though, we’re not talking about that. This week, we’re looking at something that takes the exact same amount of work as buying-and-holding an index fund.

And yet it makes way more money.

I present to you: the TQQQ ETF.

It’s the QQQ on steroids. (As you know, the QQQ is an ETF comprised of the most innovative companies in the world). It takes everything the QQQ does and multiplies it by 3.

Sound complicated? It isn’t. A trader would trade it just like the SPY or VOO or anything else.

But how does it perform?

Let’s see.

If we bought and held the SPY for a decade (starting in 2012), we would have made 270% on our money (with dividends). Hooray.

If we bought and held the TQQQ for a decade (starting in 2012), we would have made (gulp) 2,807%.

What the…?

It’s true. For the exact same amount of work, we can have WAY more money. If we choose not to be average.

But what about the risk?

Yes, there is potential risk involved. Because TQQQ is leveraged, it goes up faster and goes down faster. The recent swoon has seen TQQQ drop from $91.68 to $30.24.

But all the arguments for SPY are the same for TQQQ. We’re supposed to trust the American economy. We’re supposed to be diversified.

TQQQ contains the most innovative American companies and is also diversified.

And SPY has seen drawdowns of 57% in 2008-09 and 50.5% in 2000-02. Those are massive drawdowns and gives an investor none of the extraordinary upside.

It’s important to know that average isn’t the best we can do. There are other options out there if we want to do better.

And, of course, we could use a trading system on TQQQ and bring the drawdowns way down without losing market-beating upside.

We’ll talk about that in our next Newsletter.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.